OREANDA-NEWS. May 29, 2014. “Historic opportunities” is how president and CEO Khalid A. Al-Falih described the refining and chemicals potential for the Gulf region at the opening evening of the 9th Middle East Petrotech 2014 conference in Bahrain.

During his keynote address at the three-day conference, Al-Falih laid out Saudi Aramco's downstream strategy and the company's path to becoming a global petrochemicals player. "That includes implementing a new, holistic model for mega-scale downstream investments that will contribute to our own corporate profitability and growth, to the broader development and diversification of the Kingdom's economy, as well as to the greater prosperity of our region for many decades to come," he said.

Petrotech 2014 saw the coming together of global refining and petrochemicals experts, with the number of participants reaching almost 3,000. It was a fitting audience for the CEO as industry leaders listened attentively when he spoke about the downstream opportunities in the region, noting "the real value of our region's downstream activities is best captured through the economic ripple effect of industrial clusters, value parks and the development of the knowledge-based R&D, engineering and service firms to support them. This will help satisfy three critical regional development objectives: greater diversification of the industrial base; stronger economic growth; and sustainable job creation."Crucially, Al-Falih told attendees, the mentioned ripple effect will cause "new platforms for success," which he said lay at the heart of Saudi Aramco's downstream strategy.

The "new platforms" are characterized by five key elements: scale, integration, strategic location, operational excellence and technology. Al-Falih then went on to explain each element in detail. Beginning with scale, he explained to attendees that this would entail "constructing enormous refining and chemical plants whose mega-capacity allows them to capture operational and scale efficiencies and serve as the nuclei for the secondary and tertiary industries."

Saudi Aramco's unique upstream position means it is no stranger to constructing large scale facilities. "We're used to building on an immense scale, as well as producing and processing vast volumes of hydrocarbons," said Al-Falih. "Furthermore, mega-projects are one of our core competencies, and we've been extending that expertise into the downstream. So we're well accustomed to dealing with the challenges that come with massive scale, as well as with reaping its benefits."

Moving on to integration, the CEO described how the company would leverage those economies of scale by integrating refining, chemicals and lubes for both value addition and portfolio diversification.

"In our view, the future lies in integration across the entire value chain," he commented. From feedstock to finished product, this would enhance "value addition opportunities created all along
the way for us, our investment partners, and the customers and product off-takers downstream from our investments," Al-Falih said. Listeners were then told that the third element of strategic location would involve locating these facilities close to major markets with substantial long-term growth, but importantly, as Al-Falih pointed out, "while ensuring they are tied to strong marketing networks in those countries."

Saudi Aramco is already expanding in the Kingdom and in high growth markets such as Asia to ensure its facilities and infrastructure are close to the centers of future demand. Al-Falih cautioned, however, that while scale, integration and location are vital elements to downstream success, on their own they would not be enough. This brought him to the fourth element of operational excellence, which Al-Falih said encompasses cost optimization and reliability as well as safety and environmental stewardship. While developing the right downstream investment portfolio to match the company's business objectives and the Kingdom's economic goals is critical, "we must also develop it in the right way for it to be globally competitive and therefore sustainable over the long term," he said.

The final element of Saudi Aramco's formula for downstream success is technology. The CEO said, "Focus on technical excellence and innovation begins with more efficient process technologies to produce cleaner products and maximize profitability."

With global oil demand set to rise by a quarter over the next 25 years due to global demographic growth and rising standards of living, Al-Falih said he is confident that the prospects for the downstream industry are similarly bright, particularly as hydrocarbons must be converted into useful products before they are consumed. He said that the company will be one of the largest downstream players on the planet by volume, "but for us, that's definitely not enough. Our refining capacity will also be linked to robust marketing networks with strong brands, and to world-scale petrochemical plants — in fact, a growing proportion of the hydrocarbon molecules we produce will go to chemicals, given that this sector is set to grow at multiples of global GDP."

Attendees were also told that the company is a founding shareholder in the new Saudi Arabian Company for Industrial Investment, which focuses on manufacturing and conversion industries that rely on petrochemicals, plastics, fertilizers, steel and aluminium. For Al-Falih, the future workforce of Saudi Aramco is critical to the success of the company's downstream strategy: "We are bringing into our workforce thousands of talented young men and women and investing in their education and development, to help deliver the bright future to which we aspire. Which is why, while I am very proud of our company's downstream progress to date, I am even more energized by the achievements and developments that are still to come."